The cheapest ways to pay the average $1325 Christmas cost

How do you intend to pay for the average $1325 Christmas cost? Your choice determines not just how long you have until you actually need to fork out for the festivities but whether they set you back far more than you intend thanks to interest and fees.

So let’s look at the options beyond cash … some of which are new and – ahem – exciting.

How you pay for Christmas shopping will make a big difference to how much you pay and when you have to find the money.Credit:Shutterstock

Credit cards

Days before you need to find the money: up to 62

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Aussies will be relying more heavily than ever on credit cards this Christmas, a survey by St George Bank says. Almost half haven’t managed to save for Christmas presents and will instead charge them, while 30 per cent will be forced to rely on credit to survive the often financially cruel yule.

Rising power, the high cost of holiday periods and school fees are the main culprits, respondents said.

Seventeen per cent said they’d clear their cards within four to six months. But 12 per cent expected to do so just in time for the 2019 festive frenzy (estimating seven to 12 months), while 2 per cent expected to still be in debt from last Christmas, next Christmas.

At an average credit card interest rate of 18 per cent, that’s a lot of lost money. Another consideration is you usually pay a steep annual fee for the plastic privilege.

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Buy now, pay later facilities

Days before you need to find the money: Possibly 0 as 25 per cent is due immediately (new Afterpay customers); or 14 days for the first 25 per cent, with each subsequent 25 per cent due in fortnightly instalments until week eight (existing Afterpay customers).

What I hear most often from people who use spreading-like-wildfire buy now, pay later services is: "it helps me budget". But the risks can be as with credit cards above, or even greater - if you hook a facility to such a card.

Sure, by doing so you could add some credit card interest-free days to what you get via the post-pay service, but ASIC has recently sounded a warning bell about these services and sought product intervention powers to improve customer protections. You see, because no interest is charged, they slip through the cracks of the National Credit Code. And that means people who can ill afford it can sign up to multiple different ones.

You’ll pay penalties if you miss payments, with main player Afterpay charging an initial $10 late fee, and $7, seven days after that. It makes a quarter of its revenue in this way.

ASIC’s report found one in six users have suffered some harm, such as late fees or not being able to pay other expenses because of previous spending.

And that’s my issue: Afterpay and the like make the payment part an afterthought. There’s a psychological propensity, backed up by several research pieces, to spend more than you otherwise would.

My fear is heightened by our increasingly superficial society, with 60 per cent of respondents to a Mozo.com.au survey about Afterpay reporting they mainly bought clothes. One-in-three have hidden Afterpay purchases from a loved one, and the same number have missed a repayment.

You get none of the potential perks you would if you instead directly used a credit card: extended warranties, purchase protection if you lose, damage, or have something stolen and – a big one if the Santa spirit overcomes you and you pay over-the-odds – price guarantees (some card providers will reimburse you the difference).

But fundamentally, each time you buy now and pay later, your earnings get further behind your expenses - to the possible whole extent of your pay.

In further evidence, the innovative concept encourages consumption, services are generally "free" because retailers and e-tailers pay to be able to offer them.

Layby

Days before you need to find the money: 0 days for perhaps 10 per cent, then the rest in instalments of as little as $5 over eight to 10 weeks.

OK, so with perhaps only one pay left before Christmas, this is no good for presents - but it’s perfect for bagging bargains in the New Year sales.

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Yes, big retailers still offer layby, and there are also now some online options, removing the old-school inconvenience of having to go into a store multiple times.

There’s usually a small service fee, of $2 to $12, but this is far preferable to paying credit card interest long-term.

And what I love about layby is it’s a kind-of retail jail that makes finding money so very motivating. You pay before you get to play.

A final word

Go crackers with any form of spending this Christmas and you take on much more risk: comprehensive credit reporting is now in Australia with a vengeance.

What that means is if you financially over-indulge in the silly season, then miss repayments to any of your creditors by 14 days or more, it will hurt your credit score.

And – as Australia marches relentlessly towards individual, risk-based interest rates – next year’s Christmas credit could end up costing you even more.